3 February 2011 (Transcript of the speech, exactly as it was delivered)

Ladies and Gentlemen, I am delighted to be able to address the distinguished range of speakers and guests here at the annual Oslo Energy Forum. Following on from an interesting panel discussion, I’d like to talk about the crucial role gas can play to address the acute energy challenge facing the world.

There is no doubt that for the UK gas will continue to play a crucial role. In 1981 1% of power generation came from gas. We have heard today that this figure has rose to 47%. This is the trend.

The energy challenge is how to balance meeting the increasing global demand for affordable and secure energy - mostly outside of OECD countries - while simultaneously tackling climate change. Maintaining a sufficient supply of reliable, affordable and sustainable energy is essential for global growth and development. With world energy consumption expected to double in the first half of this century; access to resources becoming ever more difficult; and climate change becomingly increasingly urgent, the energy challenge we face is complex and many sided.

We must also remain aware of the short term volatility and the ever present interplay between energy issues and geo-politics. We look today at unfolding events in Egypt, Gaza, Israel, Jordan, Syria and Iraq and they will all have an effect on energy security.

But though the challenge is great, the creativity and dynamism of our energy industry is greater. The British government is dedicated to ensuring that we develop the technologies and capabilities necessary to meet our future energy and climate needs. In last month’s UK-Norway Prime Ministerial Joint Statement of Priorities we underlined our commitment to developing new and sustainable energy technologies.

New technologies increasing gas supply

New technologies are revolutionising the way the world views energy reserves. Unconventional sources are being unlocked like never before, and unconventional gas reserve estimates are rising rapidly. Previously non-viable deposits of coal bed methane, and unconventional tight and shale gas, are now being made accessible through technological advances, especially in horizontal drilling and hydraulic fracturing.

North America is a demonstration of the unconventional gas revolution. Five years ago the US was a net importer; now the US is a gas independent and even an exporter of gas. Today, total US gas reserves are estimated to be able to meet between 50 to 100 years of US demand.

These developments represent not just a success story for the United States, but for the world. There is potential to produce unconventional gas in Europe, Middle East, South East Asia, Australasia, Africa, South America - in fact on every continent. And it is not just potential: we are already starting to see wider development outside the US, especially in Australia. Although uncertainties and obstacles remain, the IEA estimates that unidentified or undeveloped unconventional gas could extend the world’s gas reserves by as much as two hundred years.

Increasing gas demand and LNG

But the story of natural gas is not a future built simply on supply side technology improvements. It is a future being built on fundamental changes in the dynamics of global demand. The number of nations importing LNG has more than doubled over the last decade and trade is evolving from traditional A to B movement to multi-point, multi-basin delivery. As gas becomes a more tradable commodity, supplies should become more reliable and costs fall. The importance of natural gas in the world’s energy mix only stands to rise with this change in the market dynamic.

The role of gas in tackling climate change

Some have speculated that western governments’ ambition to tackle dangerous climate is incongruent with their commitment to meeting the energy challenge. This is a mistake. In the shorter and indeed the medium term, as we transition to a low carbon economy, natural gas is likely to become increasingly prominent in the energy mix. Gas is the cleanest fossil fuel under traditional generation. It generates 50% less carbon per kilowatt hour than coal, and generates a mere fraction of its nitrogen dioxide emissions. Moving towards gas provides a realistic pathway to achieving major greenhouse emission reductions. As western governments continue to feel the aftershocks of the global economic slowdown, in the shorter term many economies will increasingly turn to natural gas in order to meet their international climate obligations.

Carbon capture and storage

With the addition of Carbon Capture and Storage to gas generation, we are offered the possibility of natural gas becoming a permanent feature of the low carbon future. Gas power stations fitted with CCS see a 90% net reduction in CO2 emissions.

The individual elements of CCS technology are available today. Transport, capture, reinjection, and underground storage are all immediately deployable. But to succeed we need to prove their economic viability on a commercial scale to producers and consumers alike. Therefore demonstration projects are crucial. The United Kingdom is working closely with Norway to develop and demonstrate CCS technology. The Mongstad project in Norway is an excellent illustration of this. We would urge all countries, particularly gas producers, to invest in developing this technology.

In the UK we are already looking at the impact of new gas developments on our own predictions for future energy mix. As our gas production from the North Sea declines, we expect our dependence on imported gas to increase from around 30% now to 50% by 2020.

Governments can support the development of CCS not only through demonstration projects, but also by introducing energy policies that price in the true cost of carbon. The European Union is helping to shape - politically and intellectually - the conversation about climate and energy. Both as the European Union, and as the UK, we will continue to work closely with Norway on this.

Conclusion

Ladies and gentleman. I have briefly outlined the energy challenge facing the world. I believe natural gas will play a crucial role in offering the solution, a stepping stone to the more distant future. New technologies have fundamentally redefined how we view our gas reserves and supply, and will fundamentally impact the world’s energy mix. The world’s obligation to tackle climate change means a world that increasingly demands natural gas, and if CCS works, a world which will demand natural gas for decades to come. This could allow gas to be even more than a bridge or a stepping stone to a low carbon future, but to be part of the destination also.